Initiating Coverage – NIIT Technologies Ltd :: CSEC Research

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Initiating Coverage – NIIT Technologies Ltd

Revenue to grow at a CAGR of 25%...

We expect NIIT Technologies revenue to grow at a CAGR of 25% between FY11 – FY13 to Rs. 19,291 mn. Strong order book, higher domestic business and revenue flow from new deal i.e. Morris Communication and Eurostar gives thrust to our revenue assumption.

Superior margin profile combined with low relative volatility in earnings…

Earnings volatility is one the principal concern faced my midcap IT companies and NIIT Technologies has got a superior margin profile with relatively low volatility in margins. During the Period FY07-FY11, its operating margin was in the range of 18% ~21% with relative volatility 6%.

Order book gives revenue visibility…

NIIT Technologies opening order book (executable in next 12 months) has grown at a CAGR of 17.3% from US$76 mn in FY07 to US$169 mn in FY12. Historically company revenue to opening balance of order book was in the range of 1.9X ~ 2.6X (average of 2.1X for the period between FY07 – FY12). Our revenue estimates for FY12 is at the lower end of the range (i.e. 1.9X of FY12 opening balance of order book) in the midst of uncertain global economic condition.

Outlook & Valuation:

We expect NIIT Technologies to report an EPS of Rs. 31.3 and Rs. 36.5 for FY12E and FY13E. At the CMP of Rs. 200 the stock trades at 6.4X and 5.5X to the FY12E and FY13E earnings respectively. We have arrived at a target price of Rs. 255 is based on 7x FY13E EPS. We recommend NIIT Technologies as an “Outperformer”rating with a potential upside of 28% from current level.